Slaughter, J.
When insurance coverage is insufficient to satisfy multiple claimants, insurers face a dilemma. An insurer can seek individual settlements, but this approach risks exhausting policy limits before satisfying all claimants. Another option is to refrain from individual settlements in hopes of attaining a global settlement, but this approach may fail and expose the insured to increased personal liability. Either option creates risks for the insured and thus exposes the insurer to a later claim that it breached its duty of good faith and fair dealing to its insured, or even that it acted in bad faith.
Here, the insurer facing this dilemma filed an interpleader action naming all known claimants. The insurer deposited the policy limits with the trial court and continued to defend its insured against all claims. We hold that this choice did not breach the insurer’s duty of good faith and fair dealing to its insured and did not amount to bad faith.
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We affirm the trial court’s grant of summary judgment for Standard Fire on Baldwin’s claims for breach of the duty of good faith and fair dealing and for bad faith. At issue is whether Standard Fire acted properly in rejecting Baldwin’s initial settlement demand and in filing an interpleader action to deal with the multiple potential claimants against the Hummels’ insurance policy. Under the prevailing legal standard, which asks whether the insurer made “reasonable efforts to compromise and settle the matter”, Menefee v. Schurr, 751 N.E.2d 757, 760 (Ind. Ct. App. 2001), this case is a close call. Questions of “reasonableness”, after all, are typically fact questions precluding summary judgment. See Allen v. Great Am. Rsrv. Ins. Co., 766 N.E.2d 1157, 1164 (Ind. 2002). But circumstances like those before us today, which are common and recurring, warrant a different approach.
It is well-recognized that “[m]ultiple claimants with serious injuries can cause special problems regarding the duty to settle.” 3 New Appleman on Ins. L. Lib. Ed § 23.02[9][a][i] (2024). The issue stems from the risk of exhausting policy limits by settling with some but not all claimants. The result is often a zero-sum game in which “the settlement of one claim may reduce the funds available to pay others.” Ibid. Alternatively, the insurer may reject individual settlement demands in hopes of “equitably resolv[ing] all of the claims” together. Ibid. But even this latter approach risks “exposing the insured to an excess judgment if the spurned claimants choose to take their claims to judgment.” Ibid. No matter what path the insurer takes, “someone is going to be unhappy with the result and may sue the insurer for bad faith.” Ibid.
We proceed in two steps. First, because Indiana’s appellate caselaw on this issue is sparse, we examine other jurisdictions to identify best practices for insurers dealing with multiple claimants and insufficient policy limits. We adopt Section 26 of the Second Restatement of Liability Insurance as the governing standard in Indiana. This new standard both requires insurers to try to limit an insured’s overall liability exposure and provides insurers with a “safe harbor” for limiting their own liability through an interpleader action. Second, we apply our new standard here and affirm the trial court’s entry of judgment for Standard Fire.
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Jurisdictions deal differently with this issue of multiple claimants with serious injuries whose claims threaten to outstrip the insured’s coverage. There are two leading approaches: one grants an insurer “wide discretion” to handle settlement offers; the other requires the insurer to minimize the insured’s overall liability exposure. For either approach, some jurisdictions recognize interpleader as an effective tool in these cases.
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To that end, interpleader actions are a useful tool for maintaining that balance, especially when an insured faces the prospect of owing multiple claimants an amount exceeding the policy’s limit. In that circumstance, an interpleader “prevent[s] one of multiple creditors from obtaining the advantage of obtaining the first judgment”, along with protecting the insured from “double or multiple exposure to liability.”…
With these principles in mind, we adopt Section 26 of the Second Restatement of the Law of Liability Insurance. Section 26, which has two parts, distills the principles present in our caselaw. The first part imposes a duty on insurers:
(1) If multiple legal actions that would count toward a single policy limit are brought against an insured, the insurer has a duty to the insured to make a good-faith effort to settle the actions in a manner that minimizes the insured’s overall exposure.
Restatement (Second) of the Law of Liability Insurance, § 26 (Oct. 2024). The second part provides insurers with a safe harbor from liability:
(2) The insurer may, but need not, satisfy this duty by interpleading the policy limits to the court, naming all known claimants, and, if the insurer has a duty to defend or a duty to pay defense costs on an ongoing basis, continuing to defend or pay the defense costs of its insured until:
(a) Settlement of the legal actions;
(b) Final adjudication of the actions; or
(c) Adjudication that the insurer does not have a duty to defend or to pay the defense costs of the actions.
Ibid.
We discern the following from these provisions. When confronted with multiple claimants against an insufficient insurance policy, insurers in Indiana should try to minimize their insureds’ overall liability. See generally Peckham, 895 F.2d at 835 (describing the “insurer’s goal” as to “relieve its insured of so much of his potential liability as is reasonably possible”). Insurers should make settlement decisions and manage policy limits with this goal in mind. But as we have also seen, this rule creates uncertainty and unpredictability to the extent it opens the door to the later argument that the insurer “could have eliminated more liability by a different settlement strategy.” 3 New Appleman, § 23.02[9][a][ii]. To mitigate this uncertainty, insurers may rely on an interpleader action as a “safe harbor” that shields insurers from liability to their insureds. The comments to Section 26 emphasize that the safe-harbor provision “is principally directed at simple liability-insurance-coverage situations”. Restatement (Second) of Liab. Ins., § 26 cmt. c. In other words, “[t]he more complex a liability insurance arrangement is, the more likely . . . . the safe harbor provided in subsection (2) may not be practicable.” Ibid.
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Baldwin first charges Standard Fire with breaching the duty of good faith and fair dealing to its insured by rejecting his initial settlement demand. He also alleges Standard Fire acted in bad faith. We disagree on both counts.
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Applying this principle here, we hold that Standard Fire did not breach the duty of good faith and fair dealing when it rejected Baldwin’s initial settlement demand and filed an interpleader action. When confronted with Baldwin’s $50,000 settlement demand, Standard Fire knew of at least one other claim (by Hopkins) that would likely exceed the policy’s $50,000 per-person limit, and a third potential claimant (McCarty) who still had time to file a claim. Accepting Baldwin’s initial settlement demand risked excluding McCarty from any recovery from the policy’s proceeds and leaving her with no choice but to sue the Hummels personally. Facing these facts, Standard Fire filed an interpleader action to balance the interests of all parties given the constraints of the $100,000 per-accident policy limit.
Standard Fire’s conduct falls squarely within our “safe harbor” provision for interpleaders. The safe harbor’s eligibility requirements are straightforward. An insurer facing multiple claims against a single policy limit may satisfy its good-faith duty “by interpleading the policy limits to the court, naming all known claimants, and, if the insurer has a duty to defend . . . , continuing to defend” the insured till the litigation ends. Id. § 26(2). Standard Fire satisfied these requirements when it filed its interpleader action, named all known potential claimants (Baldwin, Hopkins, and McCarty), deposited the full $100,000 policy limit with the trial court, and continued to provide defense counsel to the Hummels. Facing the prospect of multiple claimants whose injuries exceeded the policy limits, Standard Fire did not breach its duty of good faith and fair dealing to the Hummels by filing an interpleader action.
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For these reasons, we affirm the trial court’s entry of summary judgment for Standard Fire. To the extent the court of appeals’ opinion decided issues not addressed here, we summarily affirm it on those issues.
Rush, C.J., and Massa and Molter, JJ., concur.
Goff, J., concurs in part and dissents in part with separate opinion.
Goff, J., concurring in part, dissenting in part.
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The Court affirms the trial court’s entry of summary judgment for Standard Fire, concluding that an insurer does not breach its duty of good faith or act in bad faith by filing an interpleader action for policy limits when insurance coverage is insufficient to satisfy multiple claimants. Ante, at 2. But here, filing an interpleader action may have been a breach of the duty of good faith if Standard Fire’s fear that McCarty would make a claim was unreasonable. And Baldwin, in my view, presented sufficient facts for a fact finder to conclude Standard Fire acted in bad faith.
I. Standard Fire may have breached its duty of good faith by filing an interpleader action if it lacked reasonable fear that McCarty would make a claim.
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To use interpleader, Standard Fire had to have a “real and reasonable” fear of a third claim from McCarty, and Baldwin presented sufficient facts that the fear might not have been reasonable.
II. Standard Fire may have acted in bad faith.
The Court also concludes that Standard Fire did not act in bad faith towards the Hummels. But Baldwin presented evidence for a fact finder to conclude that Standard Fire acted in bad faith by placing the policy limit in an interpleader action.
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Conclusion
Though I concur in the Court’s holding adopting the Restatement’s safe-harbor provision, I disagree that Standard Fire is entitled to summary judgment. As I see it, Baldwin has presented sufficient facts for a fact finder to conclude Standard Fire may have breached its duty of good faith or acted in bad faith. I would therefore reverse the trial court’s grant of summary judgment for Standard Fire as to these issues.